Midday Tidbits — Happy Hour in Washington

By David Gaffen

Tip your waiters.

Deal Journal’s warrior goddess Heidi Moore notes President Bush’s remarks of late suggesting that current economic woes stem, in part, from the fact that Wall Street was drunk, and now has a hangover. She suggests that a state of drunkeness is the wrong analogy. MarketBeat isn’t so sure. What we are sure of is this: if Wall Street was drunk, who was the bartender handing out free drinks? Our thoughts at right.

Evidence of the financial sector’s renewed strength can be found in the credit-default swaps market, where fixed-income investors buy insurance against the possibility of a company defaulting on debt. According to Credit Derivatives Research’s counterparty index (an index of 15 large banks and brokerages), it costs $133,700 annually to insure $10 million of corporate bonds for five years — down from the July 15 peak of $182,000, now at levels not seen since June.

Bianco Research finds, however, that the weighted average cost of capital for each of the S&P 1500 sectors — that is, what it costs for various industries to raise money through equity or debt — suggests that raising money through equity for financial companies is still quite cost-prohibitive. The average cost of capital is about 13%, according to Bianco, compared with the average cost of 9% for the S&P 1500. Within that sector, the companies most impacted by the credit crisis have a hard time selling shares, but can borrow money easily, in part because “bondholders are treating the Financial sector as if it has the ‘too big to fail’ implied put option.”

Comments (5 of 12)

With out a doubt on the nose... going down, placed the bet to loose at 1475... won by - 1492!

2:13 pm July 24, 2008

Anonymous wrote :

Hey Oz,

Just wondering, did you call it right on your soy june 20th contracts?

8:03 am July 24, 2008

The Abyss... harvests another bar-tended of greed! wrote :

DG, another great article... HM is in charge... "not" a hangover this bing on free $Muck Money is not over. And, another one bites the dust!
.
On June 18, Fifth Third announced that it would raise about $1 billion
in capital through preferred stock, cut its quarterly dividend by 66% to
15 cents a share, and that it would raise another $1 billion through the
sale of non-core businesses.
During the conference call with investors Tuesday, Kabat said, “We can’t
and won’t comment in any greater detail on what these businesses are or
are not other than to say that the decision to sell assets is strategic
and contemplated for sometime.”
With the mother of all credit crunches setting in like concrete the
inevitable break of the nine year positive earnings streak is more than
a one time event it’s a bad omen

10:14 pm July 23, 2008

Banco Ambrosiano wrote :

Bailing out everyone is the right thing to do, the american consumer is always there ro carry the load for us concerning whatever we want to do. Bravo for all these Wall Street bailouts, Break out the vino, we did it again!

10:09 pm July 23, 2008

Charles Keating wrote :

People forget that Alan Greenspan and John McCain wrote great letters of support for me right before the Lincoln Savings collapse and the eventual morph into the Savings and loans scandals and collapses in the 1980's that left the taxpayers with a gigantic load of debt. This all happened while George Bush had to companies collapse under his feet that were energy related. Ah my homeboys are still out there working, same ol - same ol!

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